TurboTax temporarily stopped processing state tax returns after noticing an increase in suspicious filings, the tax preparation software company said Friday.
The company resumed e-filing of state returns at 6 p.m. Friday after halting the transmission of returns late Thursday to investigate reports of fraudulent state tax returns being filed through its software. The firm noticed an increase in “suspicious filings” and attempts from scam artists to use stolen personal information to file fraudulent state returns, giving them the ability to steal state tax refunds.
“We’ve identified specific patterns of behavior where fraud is more likely to occur,” Brad Smith, president and chief executive of Intuit, TurboTax’s parent company, said in a statement. “We’re working with the states to share that information and remedy the situation quickly.”
After conducting an investigation with third-party security firm Palantir, TurboTax concluded the personal information used to file the fraudulent returns was not stolen from its own systems, which suggests the scammers are using data they stole elsewhere. TurboTax also added additional security measures to fight fraud, such as multi-factor authentication, which typically requires people to provide a code along with their username and password.
Filing early is typically viewed as the biggest defense against tax refund theft, since it reduces the chances that someone else can file using stolen information. Customers who think their identity was stolen can report the fraud by calling TurboTax.
Minnesota announced on Thursday that it would stop accepting tax returns filed using TurboTax because of the potential fraud. Utah, Alabama and Georgia also posted notices saying they were aware of attempts to file fraudulent returns. According to Utah’s release, at least 19 states have been affected.
State tax authorities have held several conference calls to discuss the fraud since Thursday night, said Gale Garriott, director of the Federation of Tax Administrators. Garriott couldn’t say how many states were affected by the fraud but he said all state authorities are reviewing their systems and sharing information with each other to make it easier to spot fraudulent returns. He also said states aren’t limiting their investigations to one tax preparation company.
H&R Block, Jackson Hewitt and TaxAct said they haven’t noticed an uptick in fraudulent filing. Intuit says it is working with state authorities to resolve the issue, whether or not they’ve reported an increase in suspicious activity. Federal tax returns were not affected.
The Internal Revenue Service said it works closely with tax preparers and state tax authorities to fight fraud and encouraged taxpayers to continue filing their returns. The IRS has accepted 14 million tax returns through Jan. 31 and issued 7.6 million refunds.
This is only the latest stumble for TurboTax during this tax season. Last week the company backtracked on changes to its deluxe desktop software program, which would have required customers who want to file investment- and business-related tax forms to upgrade to more expensive software. After receiving backlash from customers, the company is now letting returning TurboTax customers upgrade for free.